Subsection 211.6(1) - Definitions
Can a corporation can satisfy s. 20(1)(ss) and the requirements of the qualifying environmental trust (“QET”) definition (the “Definition”) where: a wholly-owned subsidiary of a corporation is the operator of a mine, there is a requirement that the operator fund future reclamation of the site, the subsidiary does not have the financial ability to set up such funding, the parent of the operator assumes the reclamation obligations of the subsidiary and sets up, and is the beneficiary under, a QET? CCRA responded:
…In the situation where a corporation has entered into a contract with Her Majesty in right of Canada or a province, the terms of the contract would have to be reviewed to determine whether the requirements of the Definition are satisfied and whether the reclamation obligations are those of the parent or the wholly-owned subsidiary. If the contract confirms that the reclamation obligations have been legally transferred to the parent, and all of the other requirements of the Definition are satisfied, it is our view that the exclusion in paragraph (b) of the Definition [now para. (b) of the excluded trust definition] would not apply.
…Similarly, in the situation where a corporation is or may become required under a law of Canada or a province to maintain a QET, the relevant legislation would have to be reviewed to determine whether the reclamation obligations of the corporation can be transferred to another person. If the relevant legislation provides for a transfer of a reclamation obligation from a wholly-owned subsidiary to a parent, and all of the other requirements of the Definition are satisfied, it is our view that the exclusion in paragraph (b) of the Definition would not apply. Accordingly, the payments to the QET would be deductible to the parent pursuant to paragraph 20(1)(ss) of the Act.
Qualifying Environmental Trust
ACo owns and operates the Pipeline which is situated in Canada, and is responsible for the Reclamation Obligations in respect of the Pipeline. The ACo Reclamation Trust (the “Trust”), settled pursuant to the ACo Trust Agreement, is required to be maintained under an order made by the NEB. The Trustee is a licensed trust company. The trust is a discretionary trust whose beneficiaries are ACo and the Orphan Pipeline Fund (a federal not-for-profit corporation maintaining funds for the reclamation of abandoned pipelines in Canada, consistent with the NEB’s Reason for Decision MH-001-2013). However, the Trust is stated to be “maintained for the sole purpose of funding the Reclamation Obligations” and “distributions from the ACo Reclamation Trust to a Beneficiary or a third party are to be made for the sole purpose of discharging the Beneficiary’s Reclamation Obligations.” The Trust may not be revoked by its Beneficiaries or ACo, acting as a whole, or the Trustee. The NEB, in the exercise of its statutory authority, may direct the termination of the, and order such successive arrangements as are appropriate to fulfill the purpose of the Trust. If property remains in the Trust fund after all the Reclamation Obligations are discharged, then the Trustee, with the approval of the NEB, may distribute the fund among any of the Beneficiaries, including the Orphan Pipeline Fund, as the Trustee in its sole discretion sees fit.
Where the Pipeline ships third party products, ACo shall contribute monthly to the ACo Reclamation Trust an amount equivalent to the identifiable charges collected to pay for the future cost for the abandonment of the Pipeline. Where the product shipped is owned by ACo, funds will be contributed to the ACo Reclamation Trust monthly. The amounts contributed are based on the amount required to fulfill the Reclamation Obligations and is required to be pre-determined every five years by the NEB.
Re the Trust qualifying as a qualifying environmental trust under s. 211.6(1), contributions by ACo being deductible under s. 20(1)(ss), “qualified investment” in s. 204(b) not being “prohibited investments” of the Trust under s. 211.6(1), and that ACo’s reasonable share of income etc. under s. 107.3(1) is 100%.
|Locations of other summaries||Wordcount|
|Tax Topics - Income Tax Act - 101-110 - Section 107.3 - Subsection 107.3(1)||100% of the income and non-capital losses of a pipeline reclamation trust are allocable to the pipeline company||154|
On May 29, 2014, the National Energy Board decision MH-001-2013 on set-aside and collection mechanisms proposed a Model Trust Agreement to provide pipeline companies with guidelines for establishing qualifying environmental trusts as defined in ITA s. 211.6(1) for dealing with reclamation obligations when abandoning pipelines.
Section 2.04 of the model trust provided:
If property remains in the Fund after all Reclamation Obligations of the Beneficiaries are discharged, then the Trustee, with the approval of the Tribunal, may distribute the Fund or any part thereof among any of the Beneficiaries [essentially defined as those subject to the Reclamation Obligations] and Orphan Pipeline Fund [defined as a not-for-profit organization to be established by federal statute whose purpose includes paying for the cost to abandon a pipeline constructed or operated under a federal statute] as the Trustee in its sole discretion sees fit.
Section 2.05 provided that not more than five years before the expiration of any perpetuity period:
the Trustee shall pay the Fund to the Company, and the Company covenants upon receipt of the Funds, to establish, at once, a new irrevocable trust upon the terms and subject to the same conditions set out in this Agreement ("the New Trust Fund"), and to contribute to the New Trust Fund the entirety of the Fund.
CRA noted that "paragraph (b) of the definition of "qualifying environmental trust" in subsection 211.6(1) sets out the Sole Purpose Requirement" and indicated that these two clauses "do not, in and of themselves, offend the Sole Purpose Requirement ."
Four affiliated Canadian mining companies who operate Canadian mines directly (in the case of Corporation A and B) or through a partnership (in the case of Corporation C and D) will dissolve the four existing reclamation trusts with respect to such mining sites, receive the funds from the dissolved trusts as the respective beneficiaries and settle a single new reclamation trust (containing standard conditions) with respect to the mining sites, with all four corporations and the Province as beneficiaries. Under the Trust Deed for this "Single Reclamation Trust," each mining site will include "any land, water or watercourse used or disturbed by the construction or operation of such properties."
Rulings that the Single Reclamation Trust will be a qualifying environmental trust, that contributions by the Corporations will be deductible under s. 20(1)(ss) and the remaining amounts received by it upon dissolution of a previous reclamation trusts will be included in their income under s. 12(1)(z.1).
A public company (the Corporation) will dissolve existing reclamation trusts with respect to different mining sites, receive the funds from the dissolved trusts as the beneficiary and settle a single new reclamation trust (containing standard conditions) with respect to the mining sites. Under the Trust Deed for this "Single Reclamation Trust," each mining site will include "any land, water or watercourse used or disturbed by the construction or operation of the site."
Rulings that the Single Reclamation Trust will be a qualifying environmental trust, that contributions by the Corporation will be deductible under s. 20(1)(ss) and the remaining amounts received by it upon dissolution of a previous reclamation trusts will be included in its income under s. 12(1)(z.1).
|Locations of other summaries||Wordcount|
|Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2)||site pluralized||47|
Xco, which owns the “Mine,” will form a joint venture (“JV”) with a partnership funded by investors (the “Partnership”). The JV Agreement will provide for most Mine related expenditures to be made pursuant to the JV Agreement and for the sharing of Mine revenues, and provide for the formation of a reclamation trust (the Reclamation Trust”) to satisfy all the reclamation obligations imposed respecting the Mine, which is being reopened. Under the terms of the JV, the Partnership will make a cash contribution to the Reclamation Trust, for which it is a co-beneficiary with Xco and the Province (with the three beneficiaries also being parties to the trust indenture), in order to satisfy reclamation obligations of up to a specified dollar amount.
Provided that the Reclamation Trust is a "qualified environmental trust" as defined in s. 248(1), the contribution by the Partnership to the Reclamation Trust will be deductible in computing its income pursuant to s. 20(1)(ss).
|Locations of other summaries||Wordcount|
|Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(ss)||investor-funded LP will enter into a JV with a mining co pursuant to which it will fund a QET respecting a mine to be reopened||489|
A public company (Corporation A), and two "grandchild" Canadian subsidiaries (Corporations C and D), are the members of the Partnership. Corporation A, on behalf of the Partnership, enters into a trust agreement with the Province for the New Trust solely for the purpose of funding reclamation at a mining site, and settles the New Trust with a payment which is invested in qualified investments. In the event that the Partnership defaults in its reclamation or decommissioning obligations, the Province is authorized to direct the Trustee to disburse amounts with respect to reclamation or decommissioning work completed at the Province's direction. The Partnership is the residual beneficiary (i.e., once all reclamation obligations have been fulfilled).
Rulings that the New Trust will be a qualifying environmental trust, that contributions by the Partnership will be deductible under s. 20(1)(ss) and the remaining amounts received by it upon dissolution of a previous reclamation trust will be included in its income under s. 12(1)(z.1).
The summary states:
To define the mine site narrowly, such that only the shaft is included, does not support the policy of a QET. Thus for QET purposes the area included in the "operation of a mine" includes more than just the shaft and immediate workings.